35. Road transport is responsible for the biggest
share of carbon emissions from the transport sector. In 2004 it
made up around 95% of domestic transport emissions, the same percentage
as 1990.[38] Within this
sector, cars are responsible for over 60% of emissions, with heavy
goods vehicles (HGVs) and light duty vehicles (vans) making up
almost all the remainder.[39]
Fittingly, most of the Department's carbon reduction policies
are aimed at road transport, and in particular cars. Indeed, the
Department's three main policy instruments (the Renewable Transport
Fuel Obligation, Voluntary Agreement package, and fuel duty escalator),
and three of the Department's four main carbon reduction priorities
(reducing the fossil fuel content of transport fuel, increasing
vehicle efficiency, and fostering more environmentally aware consumer
choice) are concentrated here; and this could even extend to the
fourth overarching priority, if and when debate on including surface
transport in the EU ETS advances.

36. The Transport chapter of CCP 2006 begins with
a simple explanation for why, despite the efforts of the UK Climate
Change Programme since it was launched in 2000, road transport
emissions have continued to rise. Growth in the economy has led
to an increase in journeys by car and lorry which has outpaced
progress in fuel efficient technology:

This is why road transport CO2 emissions grew by
8 per cent between 1990 and 2000 even though average new car fuel
efficiency has improved by 10 per cent since 1997. And this is
why forecasts indicate that road transport emissions will grow
by another 8 per cent between 2000 and 2010, although the link
between traffic growth and economic growth has weakened in recent
years.[40]

More particularly, CCP 2006 contains the following
analysis of the problem faced by the Government, and summary of
the Government's response:

Carbon dioxide emissions from transport depend on
three key variables:

I) the fossil carbon content of fuel consumed;

II) the fuel efficiency of vehicles; and

III) the distance travelled and the means of transport
chosen.

It is essential that we address all three of these
in the most cost-effective and practical way possible. To achieve
this we need to take action on a range of levels and that is exactly
what we are doing by developing policies for:

reducing the fossil carbon content of road transport
fuels;

improving the fuel efficiency of vehicles;

encouraging a move towards more environmentally
friendly means of transport;

and

[ ] developing the evidence base around
the possibility of including surface transport in emissions trading
schemes in the future.[41]

37. It appears to us that the accent in the Government's
policies is on reducing the carbon intensity of car journeys
(the net carbon emitted per unit of fuel consumed or distance
driven), with the aim of this achieving net reductions in the
long run by eventually overtaking the upward trend in emissions
due to a continued rise in traffic, more than on limiting the
number and length of vehicle journeys to achieve greater reductions
in the short term. This would seem to form a clear contrast to
the philosophy which this Government began with, notably reflected
in the Deputy Prime Minister's remarks in June 1997: "I will
have failed if in five years time there are not many more people
using public transport and far fewer journeys by car. It's
a tall order but I urge you to hold me to it".[42]

38. Certainly, the Government continues to pursue
a range of objectives and policies which relate to constraining
road use by cars and lorries. TheFuture of Transport
White Paper, for instance, importantly acknowledged: "We
must manage the growing demand for transport. While additional
infrastructure will be necessary, simply providing ever more capacity
on our roads and railways, ports and airports is not the answer
in the long term."[43]
In terms of specific policies, as is most recently set out in
Climate Change: The UK Programme 2006 and The Energy
Challenge (Energy Review 2006), the Government is providing
"record investment in transport infrastructure, to give more
people real alternatives to travelling by car", and is promoting
"a package of policies entitled Smarter Choices, aimed at
helping people choose sustainable travel options." The Government
has also recently doubled funding of Cycling England, and has
announced a programme "to ensure individuals and manufacturers
have the right information and incentives to encourage them to
make the most environmentally friendly choices on transport."[44]
Additionally, the Department is pursuing other measures, one of
the notable ones being an "exploration of the role road pricing
could play, in particular through the development of local pathfinder
packages which include demand management, with financial support
from the Transport Innovation Fund."[45]

39. However, it is notable that neither the Future
of Transport White Paper, CCP 2006, nor the 2006 Energy Review,
contains any explicit statement that there should be a reduction
in the number or length of car and lorry journeys (even though
this would appear to be the logical conclusion from CCP 2006's
analysis of one of the key factors in emissions being "the
distance travelled and the means of transport chosen".) Two
of the three Departmental carbon policy priorities which relate
to road use (the fourth, on promoting the EU Emissions Trading
Scheme, relating mainly to aviation) are concerned with reducing
carbon intensity. The third - "encouraging a move towards
more environmentally friendly means of transport" - implies
the possibility of measures to encourage modal shift away from
cars, but appears also to refer to measures to promote sales of
lower carbon cars; or in other words also to relate to carbon
intensity. This certainly appears to be the case from what the
Secretary of State said to us under this heading - "We need
to continue to help people make informed choices about when and
how they travel, and what type of vehicles they choose to buy
in the future"[46]
- and from the transport section of the 2006 Energy Review. We
could also note that of transport's largest contributions to the
UK Climate Change Programme, the largest (the VA package) and
third largest (RTFO) relate to carbon intensity, and that while
the second largest (fuel duty escalator) does indeed relate to
demand management, the Government abolished it in 1999. The fourth
largest (Wider transport measures) refers to the range of transport
investments made since the beginning of the Ten Year Plan, and
thus encompasses the provision of alternatives to car use; however,
its planned impact has now been halved from 1.6MtC to 0.8MtC.
It appears to us that the first half of the Deputy Prime Minister's
objective has been achieved, but, as for the latter, the emphasis
is now on managing the growth of road journeys.

40. The Department's current outlook leads to a number
of obvious questions to focus on: whether DfT's policies are delivering
their own stated objectives; whether the Department should have
bolder objectives to quicken the pace of progress in new car efficiency;
and whether it should be doing more to curb the demand
for road journeys. In examining DfT's road transport policies,
we have followed the conceptual design common to many of the submissions
we received, and divided measures into "hard" factors
(affecting vehicle fuels and technology, including taxes and incentives
to drive market take-up) and "soft" factors (affecting
the way people drive, and their demand for car journeys). In addition,
we have focused on the effects and coherence of land use planning
guidance and road building policy.

§ Vehicle
Excise Duty reforms: For new cars purchased
since 1 April 2001, Vehicle Excise Duty (VED) charges have been
grouped into bands, based on carbon emissions of each model. In
Budget 2006, duty on the lowest emitting band was reduced to zero
and, for cars purchased from 23 March 2006, a new upper band added,
creating a maximum differential of £210 (for petrol cars)
per year between the highest and lowest emitting models;

§ Car
efficiency labels: DfT has worked with
the Low Carbon Vehicle Partnership and the motor industry to introduce
colour coded efficiency labels for cars, similar to those for
electrical goods but based on the new VED bands. These are "currently
available in most UK showrooms [to] enable consumers to make informed
choices about fuel efficiency when buying a new car".[48]

42. In addition, and complementary to the VA package,
in 2002 the Government launched the Powering Future Vehicles (PFV)
Strategy, designed "to promote new vehicle technologies and
fuels, and ensure the involvement of the UK automotive industry
in the development of new technologies."[49]
This contained a main target that "By 2012, 10% of all new
car sales will be cars emitting 100g/km CO2 or less at the tailpipe".[50]
To help achieve this target, the Government established the Low
Carbon Vehicle Partnership (LowCVP), a coalition of public, industry,
and academic groups, to help to co-ordinate research and drive
on innovation; and implemented a package of measures, including
"TransportEnergy grants to encourage take-up of cleaner,
more efficient vehicle technologies; and support for industrial
and academic research, development and demonstration."[51]
The Government also counts the CCT and VED reforms detailed above
as counting towards the PFV Strategy. The Strategy is currently
being reviewed, with a report due this year.

Progress of
the VA package

43. CCP 2006 forecasts the Voluntary Agreement package
to deliver 2.3MtC savings in 2010, making it by far transport's
biggest contribution to the UK Climate Change Programme. However,
progress has faltered since its inception, and these savings are
smaller than the 4MtC originally projected. Indeed, Defra's Synthesis
of Climate Change Policy Evaluations, published in April this
year, reports: "Projected savings in 2010 from the transport
sector have been revised downwards, based on new estimates of
the GHG [greenhouse gas] emissions reductions achievable in the
voluntary agreement package."[52]

44. Average
emissions of new cars in the UK have certainly been declining
in recent years, reaching 169.4 grammes CO2 per kilometre in 2005,
a reduction of 20g/km, or 10.7%, since 1997.[53]
All the same, at this rate of progress, the average will only
be reduced to around 164g/km by 2008, meaning that the UK would
not achieve the EU target of 140g/km until around 2022.[54]
Indeed, while the European Commission envisaged progress accelerating
towards the end of the agreement, CCP 2006 reports that the rate
of progress has actually been slowing down in recent years.[55]In addition, the UK
is lagging behind other European countries: for 2004, the UK ranked
ninth out of the 13 EU states for which data are currently available,
with new car emissions standing some 7g/km above, and the rate
of progress since 1998-9 behind, the EU average.[56]The Department for Transport
should lead the Government in taking decisive action to improve
this record.

45. One of the main reasons given for this slow progress
is summarised in the DTI's Updated Emissions Projections:
"recent moves towards the purchase of larger and heavier
vehicles will have offset some of the technical advances that
improve efficiency."[57]
The Society of Motor Manufacturers and Traders (SMMT) described
to us how, although the industry has been making technological
advances, these were being to an extent counteracted by market
demand for safety and comfort features: these consume more fuel,
either directly by drawing on power (such as air conditioning)
or indirectly by adding weight (such as roll bars).[58]
The Energy Saving Trust (EST) told us, for example, that air conditioning
could increase fuel consumption by up to 25%.[59]
As for why the UK is doing worse than the EU average, we were
told that this stems from, first, a market preference for larger
and heavier cars in the UK compared to countries such as France
and Italy,[60] and second,
as the Secretary of State himself put it, "the level of dieselisation
in Britain [which] is significantly below, certainly, that of
France" among some other European countries.[61]

46. This latter point is important because diesel
engines give on average over 28% more miles per gallon than petrol,[62]
and hence emit less g/km. In fact, "dieselisation" appears
to be the single biggest factor in making progress towards the
Voluntary Agreement's targets. The SMMT baldly states, for instance:
"The improvements in average new car CO2 emissions stem from
increased dieselisation of the fleet."[63]
This was also the conclusion of the VIBAT authors: "The
main reason [ ] has been diesel penetration into the car
fleet".[64] At the
same time, the SMMT argued that this trend towards diesel will
not continue for very much longer in the UK under the present
fiscal regime, in which duty on diesel is slightly higher than
on petrol[65]in
contrast to countries such as France and Germany, in which diesel
prices are "20 to 40 per cent lower than petrol prices."[66]
If this is true, it would beg the question why the Government
does not directly incentivise the use of diesel relative to petrol
- especially given the conspicuous success in using of duty differentials
in the past, notably to transform the market for unleaded petrol.
The LowCVP, however, described two potentially serious problems
with seeking to increase and rely on dieselisation in order to
meet the VA target. First, high and increasing demand in Europe
has the potential to drive up diesel prices relative to petrol,
thus dampening demand once more (perhaps especially in less mature
markets for diesel such as the UK); second, diesel vehicles are
worse for air quality.[67]

47. Given that
increasing the proportion of new cars that run on diesel is a
very major factor in the Voluntary Agreement packagetransport's
biggest contribution to the UK Climate Change Programmeit
is surprising that the Government does not provide any direct
financial incentives for diesel over petrol. While there may be
concerns about the air quality implications of increased diesel
use, and about availability and price of diesel in the European
market, the Government should at least set out explicitly why
it is not providing such incentives, and what impact their absence
is having on the UK's progress towards the Voluntary Agreement
target for reducing the average carbon emissions of new cars.

48. Linked to the importance of diesel use, another
pronounced feature of the way in which the Voluntary Agreement
package is working in the UK is, as CCP 2006 puts it, the "increasing
split between the company car market, where average emissions
of new vehicles continue to fall, and that for private cars, where
progress has stagnated."[68]
In 2001, new company cars emitted over 2g/km more than new private
cars (179g/km compared to 176.5g/km); but by 2005, this had reversed,
with new company cars emitting some 5g/km less than private cars
(167g/km compared to 172g/km).[69]
Indeed, not only has progress of private car emissions been much
slower, in 2004 average emissions from new private cars actually
went up slightly. The SMMT firmly puts this difference
down to the greater penetration of diesel vehicles in the company
car market, something which has accelerated since the CCT reforms
of 2002.[70] According
to HM Revenue & Customs (HMRC), while there is a general market
trend towards diesel cars, CCT reforms alone are responsible for
a full third of the marked increase in new company cars that run
on diesel since 2002. In addition, HMRC finds that CCT reforms
have led to more people choosing smaller and lighterhence
more fuel efficientcompany
cars. Altogether, HMRC estimates that the net effects of CCT changes,
taken on their own, are to have reduced average company car emissions
by 15g/km from what they would otherwise have been, and to deliver
total net savings of 0.35-0.65MtC
by 2010.[71]

49. The picture is somewhat different, meanwhile,
if we turn to Vehicle Excise Duty. The Government does not publish
any disaggregated estimates of the carbon savings from the VA
package which result specifically from its VED reforms. However,
the fact that average emissions from company cars have reduced
more rapidly than the average from all cars strongly suggests
that VED reforms have been markedly less successful than CCT.
Indeed, HMRC estimates that, since the CCT reforms were announced,
some 400,000 company cars have been directly replaced by privately-bought
vehicles (for which employees are sometimes receiving a cash bonus
to assist with the purchase), and which on average emit 5g/km
more than new company cars.[72] The implication is clearly that VED on its own does not
impose nearly as effective a financial incentive to opt for a
lower carbon vehicle.This was certainly the view of
the Low Carbon Vehicle Partnership: "The incentives in the
company car sector are significantly larger than those that bear
down on the private motorist and the outcomes are similarly more
obvious."[73] And
indeed this is strongly backed up by DfT's own research. A study
it commissioned in 2004 found that: "Key players in the industry,
as well as the car drivers themselves, feel that for these initiatives
to be taken up they need to 'hit people in the pocket'. The current
VED scheme does not."[74]

50. Since that DfT research was carried out, the
Government has made further reforms to VED. In Budget 2006 the
Chancellor raised VED for higher emitting cars and reduced it
for lower emitting cars. Notably, he introduced a new top band
(Band G) for cars emitting over 225g/km, and reduced VED to zero
for cars emitting under 100g/km (Band A). The Energy Saving Trust
told us this was "a very important initial step",[75]
which might help to shift the middle of the market towards Band
B (101-120g/km). However, EST thought it would be less likely
to have an effect at the higher carbon end, and LowCVP thought
that overall the differentials were still very small in comparison
to CCT, and commensurately less effective: "If you ask private
consumers they normally require about £1000 to £1700
incentive before they are willing to downsize their vehicle and
select a smaller vehicle. [ ] Vehicle Excise Duty gives you
a range of between nought and about £220".[76]

51. The Government
deserves praise for being the first in Europe to introduce vehicle
taxes specifically based on CO2 emissions. In particular, its
boldness in reforming Company Car Tax from 2002 has been rewarded
by the visible progress made in that market.

52. Reforms
to Vehicle Excise Duty, however, have been much less impressive,
even allowing for the changes announced in Budget 2006. Tax differentials
between higher and lower carbon cars must be made much wider if
they are to drive market transformation. We note that in its submission
to the Climate Change Programme Review, the Sustainable Development
Commission stated it had "modelled the carbon savings that
could be achieved through new VED rates. Our proposal is that
[ ] that there is a £300 gap between each band. So the
top band of VED would rise dramatically to £1800/yr [ ]
and below this the bands would be at £1500, £1200, £900,
£600, £300, and £0".[77]
The Department should publish its calculations of resulting carbon
savings from adopting such £300 differentials between Bands.

53. In particular,
the new Band G is ineffectivegiven
that it is so wide and represents so little of the purchase price
of the vehicles it coversand
needs to be substantially raised in cost. As things stand (see
Figure 6), the VED paid by
the highest emitting 4x4s and luxury saloons in Band G represents
a lower percentage of their sales price, and works out at half
the cost per gramme CO2 emitted, than lower emitting hatchbacks
in Band C. To take an extreme example,
the VED on a Bentley Arnage V8 (495 g/km) works out at 0.1% of
the sales price, and £0.42 per g/km, where for a Smart forfour
diesel (121 g/km) the figures are 0.9% and £0.89 respectively.
If VED were designed effectively to weight purchases towards lower
carbon cars, we might expect the charge per g/km to shift down
markedly as it moves through the bands. This is clearly not the
case - other than for the newly reformed Band B, which EST singled
out for praise. (While it is obviously even more the case for
the new Band A rates as well, sales within this band are currently
extremely limited.)

6This is currently the only Band A model currently registered for sale in the UK. According to the SMMT, 188 were sold in the first half of 2006.

54. Another feature which
Figure 6 starkly illustrates is the almost total absence of available
models in Band A. Indeed, progress
against the central target in the Powering Future Vehicles Strategythat
by 2012, 10% of all new cars would emit under 100g/kmhas
so far been microscopic. Given that around 2.5 million new cars
are sold each year in the UK, the Government's target would require
sales of some quarter of a million low carbon cars in 2012. In
2004, the number of such sales reached a grand total of 481. In
2005, this figure declined to 467; and as of July 2006 there was
only one such model available for sale at all, with sales for
the first half of the year of 188.[78]
Given that this model is a fully electric car, but that availability
of recharging points is currently limited (Transport for London
told us there were 12 in Greater London),[79]
in order to help increase
sales of the lowest carbon cars, the Department should work with
the Energy Saving Trust to ensure that its transport fuel infrastructure
grants significantly increase the availability of fuelling stations
and electrobays for electric cars, among
other low carbon fuels.

55. Some of the evidence we received[80]
argued that one of the contributing factors to this slow progress
was the Department's suspension and then closure last year of
its TransportEnergy grant programmesincluding
the low carbon car grant schemeas
it awaited a decision from the European Commission on whether
or not to give them approval under State Aid regulations. Earlier
this year, the Commission approved the low carbon car programme,
albeit with some conditions. In June, however, the Transport Minister,
Dr Ladyman, announced that the Department would not be reintroducing
these grants, as "state aid rules limit the level of grant
available to 30 to 40 per cent of additional costs and it is clear
that the level and number of grants available would not be sufficient
to kick-start market transformation."[81]
Instead, the Department will be spending the funds on "a
new communications campaign to promote consumer information on
buying greener vehicles and on eco-safe driving", among other
green transport initiatives. In making this announcement, the
Minister drew attention to research by the SMMT to the effect
that, if every consumer chose the most carbon-efficient car in
each segment of the market, there would be a reduction in average
new car emissions of up to 30%. The implication was clear that,
amongst its objectives, the Department's new information strategy
will highlight such lower emitting models to potential buyers.

56. The Department's
argument for scrapping its low carbon car grants is that these
would only cover 30-40% of the additional purchase costs of such
vehicles, and that this is not enough to achieve market transformation.
This would seem to apply equally to the existing VED structure,
and support the case for much higher differentials.

57. At the same
time, we welcome the announcement that these grant monies will
be reallocated to a new communications campaign to promote consumer
information on the most carbon-efficient carsespecially
since EST told us that a package of such measures was "certainly
a lot more carbon effective than grant systems."[82]
However, the Energy Saving
Trust also told us that they had previously proposed setting up
just such a package, but that DfT had turned them down. The result
is that for 18 months there was neither the grants programme nor
the communications campaign. This suggests a lack of focus and
leadership from within the Department. In order to play a truly
effective role in nurturing new technologies and achieving market
transformation, it is essential that the Government is both clear
in its own mind as to how to achieve its goals, and shows long
term commitment to them.

58. The research by the SMMT which the Minister alluded
to, that average new car emissions could this year be reduced
from 169g/km to 118g/km, simply by all purchasers choosing the
lowest emitting car in each class, only underlines the slowness
of current progress, and the collective underperformance of the
state and the market. The SMMT explained the shortfall in progress
by arguing: "To some extent the technology is there, but
there is a lack of propensity of the public towards buying it."[83]
One of the reasons which the SMMT, in turn, gave for this was
the lack of variety of models at the lower end of the scale, in
particular the technical difficulties in producing mass market
family cars that emit under 100g/km. EST, meanwhile, contradicted
this latter point, arguing that the ultra low carbon car demonstration
project showed that it was possible to produce such vehicles;
it was more a case of whether there was sufficient incentive for
manufacturers to develop and market them.

59. This, it appears to us, is indeed the major issue
with the Voluntary Agreement package: what exactly is in it for
the car manufacturers and traders? Friends of the Earth (FoE)
described to us research they had carried out which shows that
car firms spend much more on advertising 4x4s and other high emitting
cars than smaller, lower carbon cars. This is no surprise since
such cars also tend to be more expensive to buy, hence creating
the potential for higher profit margins. Accordingly, FoE called
for "some mandatory agreements which will have some binding
force on manufacturers [ .] because the voluntary approach
[ ] has failed."[84]
EST, meanwhile, described to us how the simple economic motive
for promoting high carbon cars extends also to showrooms: "The
incentives in terms of commission for sales people tend to be
higher and therefore no matter what you do in terms of fiscal
measures or information you are still going to be fighting against
an economic driver which just drives those sales to continue."[85] EST, however,
further gave us their proposal for how to address this:

Mr Tarboton:
[ ] What we see as necessary is something like a "feebate"
system [in which taxes on high carbon cars would pay for incentives
on low carbon cars] or a certificate trading system [in which
manufacturers of high emitting fleets would have to buy permits
from makers of low emitting fleets] which would allow profits
to be made from low carbon vehicles, and if you can change the
balance to create greater profits for the kind of B rated cars
than profits in the F and G bands then I think you will get more
advertising, more promotion, more aspirational elements being
brought into those vehicles so that people start purchasing them.[86]

We note also that the Low Carbon Vehicle Partnership
supported the idea of a feebate scheme.[87]

60. There is
great scope for progress using currently available technology,
simply by influencing consumers to choose the lowest emitting
cars in each class. But in order for this to be realised, car
manufacturers and traders need to be given a greater incentive
to sell more lower carbon cars, and this means a much stronger
regime of sticks and carrots. We welcome the hints made by the
new Secretary of State that he would consider pressing for the
successor to the current EU Voluntary Agreement to be made mandatory[88]
- and we urge him to do so. In addition, and in advance of a new
Europe-wide Agreement, the Government should implement a feebate
or certificate trading scheme, in order to give the industry a
genuine incentive to develop and promote more low carbon vehicles.

61. In the meantime,
given the urgent need for a step change in the take up of low
carbon emission vehicles we strongly recommend that the existing
differentials in VED between different categories of cars are
widened substantially. These changes could be introduced at once
on a revenue neutral basis and would reward consumers for making
greener choices as well as encouraging manufacturers to produce
more greener cars. We also urge the Government to examine whether
differential rates of VAT can be charged on new cars to benefit
the lower emission models.

62. A final word of caution needs to be said about
the basic policy underlying the Voluntary Agreement - of relying
on the reduction in average emissions of new cars as the key means
of reducing net carbon emissions from transport. Our concern here
is that, even if the Voluntary
Agreement very substantially increases the carbon-efficiency of
car travel, it is less certain whenor ifit will
start reducing carbon emissions from road transport in absolute
terms. The VA approach depends on drivers
frequently upgrading their cars by purchasing latest models; only
in this way can the decreasing emissions of new cars rapidly and
significantly affect the emissions of road transport as a whole.
One issue with this is what happens to the cars that have been
upgraded. The number of households with more than one car has
risen from 23% in 1990 to 30% in 2003, overtaking the number with
no cars at all in 2000.[89]
Lord Clanmorris referred us to research to show that "although
cars older than 15 years represent between 30% and 35% of the
numbers they are responsible for between 60% and 70% of the pollution."[90]
While this was mainly in the context of air quality, it would
seem reasonable to expect similar results in respect of CO2.

63. If cars
with inferior g/km are not scrapped but remain on the road, then
the reduction in emissions of new cars will only have a limited
effect; and will in addition be offset by the simple increase
in car journeys resulting, all
things being equal, from
an increase in the number of cars owned. Equally,
another aspect of this policy that needs to be taken into account
are all the resources which go into making and selling each new
caras
well as disposing of old ones. It
is important that the sustainable production of new cars and disposal
of old cars is central to whatever succeeds the current Voluntary
Agreement. Finally, we are also concerned that technology is not
moving fast enoughfor example,
Volkswagen told the EFRA Committee recently that the mass market
hydrogen fuel cell car "has been a perpetual 10 or 20 years
away for as long as I can remember",[91]
and this was echoed to us by the SMMT.[92]
This might mean that, even with mandatory regulations and a stronger
fiscal regime, for a considerable time there could be a floor
for average emissions, below which it is very difficult to go.
This might certainly be the case once dieselisation of the UK
market reaches something like saturation point. All
this strongly suggests that the VA approach is not enough; it
must also be complemented by measures to curb the amount that
people drive.

65. Beyond this, the Government announced in the
July 2006 Energy Review that it "now intends the level of
the Obligation to rise above 5% after 2011/2011 provided three
critical factors are met": the development of robust carbon
and sustainability standards, new fuel quality standards at EU
level, and "costs to consumers being acceptable." As
it expands, "If these criteria are met, and for example we
were able to raise the level of the obligation to 10% by 2015,
we would save up to a further million tonnes of carbon a year,
equivalent to removing yet another one million cars from our roads."[95]

66. This would certainly represent substantial progress.
However, groups such as the Renewable Energy Association (REA)
made the argument to us that this was still lacking in ambition,
and that the Department should take bold measures to accelerate
progress beyond 2010. Certainly, progress in the UK is lagging
behind the "reference value" targets set by the 2003
EU Biofuels Directive,[96]
which envisaged biofuels making up 2% of fuel sold in 2005, rising
to 5.75% in 2010. Against this Directive, the UK Government set
itself a target of only 0.3% sales in 2005; and in terms of what
impact this is currently having, the DTI reported in February
this year: "Sales of biofuels are currently too low to impact
significantly on the carbon intensity of transport."[97]
Furthermore, the EU targets are expressed in terms of percentages
of the energy content of fuel, rather than its physical
volumethe latter being how the UK Government has chosen
to frame its targets. As currently available biofuels contain
less energy by volume than conventional fossil-fuel products,
this means that the UK's targets are further behind the European
targets than they at first appear; the REA estimates that, translated
into "by volume" terms, the European 2010 target stands
at 8%, compared to the UK's goal of 5%.

67. We have not examined biofuels policy in great
detail in this inquirymindful
of the concurrent study by the EFRA Committeeso
it is difficult for us to assess in full either the net environmental
benefits of biofuels or DfT's performance in advancing the market
for them. However, the evidence we received clearly identified
a number of key issues which the Department will need to focus
on, and which we may choose to monitor in future inquiries:

§ Progress
beyond 5%: One of the obstacles to increasing
the level of the RTFO is current fuel standards and engine specifications,
which are not guaranteed for petrol-ethanol or diesel-biodiesel
blends containing over 5% biofuels. The REA's submission suggested
two complementary ways forward. One is for the Government to press
strongly for an early reform to the relevant EU Fuel Quality Directive,[98]
so as to allow blends of 10% biofuels or higher to be approved
for sale. The other is for the Government to encourage more imaginative
ways of meeting a higher obligation level such as developing
the market for specialist vehicles which are designed to run on
85% or 100% biofuels (for which the fuel quality concerns pertaining
to conventional engines would not apply). Since the obligation
does not specify that all fuel sold must contain a set percentage
of biofuels, but rather refers to an aggregate percentage of a
fuel supplier's entire sales, suppliers could still increase their
output of biofuels above 5% even under current fuel quality standards,
by selling high blend biofuels to a dedicated market. Swiftest
progress might be made by beginning with "captive fleets"
(eg, local bus fleets, municipal vehicles).

§ Long
term and effective financial framework:
Submissions from organisations involved in the nascent UK biofuels
industry (such as British Sugar) stressed the need for the Government
to provide long term commitments to this policy in order to encourage
investment.[99] In addition
to this broader point, the REA underlined the importance of the
level at which the Government sets the RTFO "buy out"
price, in order to ensure that oil companies are incentivised
to invest in biofuels.[100]
Specifically relating to the fuel duty differential which biofuels
enjoy, the Freight Transport Association cited the need to avoid
a repeat of the Government's treatment of Liquid Petroleum Gas
(LPG), which for environmental reasons was given a significant
duty differential in the late 1990s, only for this differential
to be narrowed from 2004 onwards following a reassessment of its
environmental benefits - leaving "operators who invested
in this technology high and dry".[101]

§ Ensuring
biofuels come from sustainable sources: Sustrans
issued "some words of caution" by arguing that different
biofuels sources have varying environmental impacts, and that:
"Very few of these produce a net gain in carbon savings across
the total system." The Environment Agency, while welcoming
the use of biofuels, developed this point, recommending that the
Government focus grants on options with the lowest environmental
impact, and suggested that: "A labelling certification scheme
would enable buyers at the point of sale confidently to choose
biofuels with the lowest overall environmental impact across the
whole-life cycle and allow the fuels with the best environmental
performance to be treated differently, for example for tax purposes."[102]
In terms of which options to favour, the Sustainable Development
Commission (SDC) strongly recommended the use of agricultural
waste products (including crop and forest residues and animal
wastes), as the main source for biofuels, as the best means of
validating carbon savings and minimising the potential impacts
on biodiversity and water tables, while having the additional
benefit of productively managing a waste stream.[103]
Currently, however, the technologies for converting waste to liquid
biofuels (second generation biofuels) are not yet commercially
available.

68. On the sustainability of biofuels, we have previously
recommended that only biofuels which are from sustainable sources
be rewarded with Renewables Obligation Certificates.[104]
Accordingly, we welcome the
announcement in CCP 2006 that"the
Government is developing a robust carbon and sustainability assurance
scheme as part of the Obligation. Obligated
companies will be required from day one to report on the level
of carbon savings achieved and on the sustainability of their
biofuel supplies."[105]
However, it is unclear whether such a
scheme will simply examine the specific sources of biofuels bought
for distribution in the UK, or whether it will assess the sustainability
of the entire biofuels output of producers which are supplying
the UK among other countries. In other words, it
is not clear whether the proposed assurance scheme is intended,
not just to assure the sustainability of biofuels imported into
the UK, but to have an effect on global biofuels production. The
Government should emulate the leadership it has shown on sustainable
timber, and work to establish a rigorous international standard
on sustainable biofuels production and procurement.

70. When we pressed the Secretary of State on why
the Government has abandoned such an effective policy, he suggested
that it had been introduced, by the previous Government, as much
simply to raise revenue as to achieve environmental ends.[107]
If this was an attempt to suggest that the fuel duty escalator
was never a truly effective environmental policy and that its
abolition had not weakened the Climate Change Programme, then
the Secretary of State is surely seeking to have his cake and
eat itconsidering
that he is still counting its ongoing effects towards his argument
that transport is responsible for a quarter of the Government's
carbon reductions.

71. The fuel
duty escalator has played an important role in helping to reduce
the increase in CO2 emissions from road transport. Given the transport
sector continues to present seemingly intractable problems of
emissions growth, the Government should seriously reconsider the
case for annual increases in fuel duty, with appropriate exemptions
for lower carbon fuels, and accompanying investments in public
transport to provide revenue neutrality. Given the huge sensitivities
of this issue, particularly at a time of high oil prices, there
can be few more urgent issues on which those who have argued for
an all-party consensus on climate change policy should now focus
their attention.

72. Another policy instrument which, though several
years away from possible implementation, has received much recent
attention is a potential national road charging scheme. As it
is generally understood, this would utilise satellite technology
to charge all road users for the specific journeys they made.
It would thus be possible to vary charges, according to both type
of vehicle and time and place of journey. The central issue with
such a scheme is whether it would be aimed primarily at cutting
congestion, or whether it would be equally or mainly targeted
at reducing carbon emissions. The danger with the former is that
by optimising road use it could actually increase the volume of
traffic overall, and with it emissions of CO2;[108]
and these effects would be intensified if road charges were offset
by reductions in fuel duty, as is sometimes mooted. In this context
we were surprised and disappointed in the Transport Minister,
Dr Ladyman, for his reported comments from a recent conference:
"We have to keep focused on the main prize, congestion. It's
complex enough to design a system to deal with congestion without
trying to tackle environment issues as well. That doesn't mean
that at some point in the future we won't see how we can bring
the two together."[109]

73. In terms of the evidence we received on this
subject, it was notable that the Low Carbon Vehicle Partnership
believed that failing to include an environmental objective in
such a scheme would be a "missed opportunity".[110]
Friends of the Earth pointed to research from the IPPR which showed
"that a revenue-raising road pricing system could reduce
carbon emissions from road transport by 8% whereas a revenue-neutral
system [ ] would increase emissions by 5%".[111]
The Social Market Foundation (SMF), meanwhile, argued that since
the rise in road emissions since 1990 has come disproportionately
from HGVs and vans, one of the main functions of a road charging
scheme should be to differentiate between freight and private
trafficand between the least and most polluting lorries
and vans. The SMF cited an example from Switzerland as demonstration
of the potential of such a scheme:

[T]he Swiss LSVA lorry charge is based on distance,
weight and emissions class. By explicitly incorporating emissions
and weight classes into the charge, the Swiss scheme was able
to optimise freight and fleet management; to encourage consolidation
and cooperation within the industry; and to improve allocative
efficiency and thus lowering the trend in mileage for HGVs. Annual
increases of 7% in HGV mileage in the years before the charge
were followed by a 4% drop in 2001, a further 3% decline in 2002
and no change in 2003. Emissions of NOX, CO2 and
PM10 are predicted to drop 6-8% by 2007.[112]

74. Considering this latter point, it is particularly
disappointing that the Lorry Road User Charge, which was scheduled
to be introduced from 2007-08, was cancelled last year, to be
incorporated into a future scheme (covering all road users) that
is still some years away.[113]
Commenting on this earlier this year, the Transport Committee
concluded:

Lorry Road User Charging was expected to contribute
to the congestion, air quality and greenhouse gas targets. The
Department is already struggling to achieve these two environmental
targets, and the abandonment of this scheme may prevent them being
met. Unfortunately the Department told us it had not attempted
to quantify what reduction in pollution would result from a Lorry
Road User Charging scheme with the capacity to differentiate charges
according to emissions standards, the sort of scheme which Government
was procuring. [ ] This has been an embarrassing muddle which
might have been avoided with appropriate foresight.[114]

Again, this is especially disappointing, considering
there is no equivalent of the Voluntary Agreement package for
vans and lorries, despite these having highest rising emissions.

75. We strongly
support the introduction of a national road user charging scheme
as soon as technically possibleand would support the revival
and early introduction of the formerly proposed Lorry Road User
Charge. However, it is absolutely vital that such a scheme is
designed to reduce carbon emissions, not just congestion. We
welcome the recognition in CCP 2006 that demand management on
the road network can play a role in encouraging a move towards
more environmentally friendly means of transport.[115]
We were also reassured by the Secretary of State in his evidence
to us. When pressed by questions from the Chairman on road pricing
and its potential use to tackle climate change as well as congestion,
the Secretary of State made clear the high level of priority he
will accord to climate change in his Department. However, the
comments from the Transport Minister (as set out in para 72 above)
are clearly at variance with this and raise questions as to where
the Department's actual priorities lie.

76. Putting Dr Ladyman's comments to the Secretary
of State, we asked Mr Alexander why the Department seemed to view
reducing congestion rather than cutting carbon emissions as a
higher priority in a future road pricing scheme. He responded
that "I do not see the two areas of work as being exclusive",
before stressing that a feature of the London Congestion Charge
was its accompanying investment in public transport alternatives
to the car, leading him to argue:

Mr Alexander: [ ]My strong sense is that congestion charging will have
to come to be seen, if it is to become acceptable not just to
the motoring public but to the general public, to be part of a
wider package of measures so that you address issues of network
management but at the same time you give people genuine choices.
[ ] If we are to secure a consensus on the issue of road
pricing, an absolutely key element of that will be being able
to strengthen public transport, which of course has environmental
impacts, and so in that sense while it is important to recognise
road pricing's potential contribution to the challenge of congestion,
I do not see it as being inimical to the work that we are taking
forward in terms of carbon emissions.[116]

We welcome his clarification that the government
appreciates that road pricing can address both climate change
and congestion.

77. The only explicit reference which the Secretary
of State gave to using road pricing to reduce carbon emissions
was the need to accompany such a scheme with improvements in public
transport. He stated that this "of course has environmental
impacts" - but this would only be true if public transport
improvements resulted in fewer journeys by cars, in particular
high carbon cars.[117] (Moreover, this would have no effect on reducing emissions
from road freight.) The Secretary of State has not yet said whether
or not the road pricing mechanism itself would be designed
to reduce carbon emissions, either through reducing the absolute
volume of car and lorry journeys, or reducing the carbon intensity
of these journeys, or both. In particular, he has not yet given
his views on whether a national road pricing scheme should be
revenue-neutral or revenue-raising,[118]
nor whether it should be designed to increase the costs of motoring
relative to lower carbon modes, or more particularly whether it
should penalise higher carbon cars and lorries relative to lower
emitting vehicles. The
Secretary of State must clarify his position on this, and make
an unequivocal commitment to using road charging markedly to reduce
CO2 emissions. Failure to do so would undermine any claims DfT
has to take climate change seriously.

79. Given
that the range of Smarter Choices measures do not require large
material infrastructure projects, they can deliver significant
carbon (and congestion) reductions rapidly and cost-effectively.
We welcome the Department's announcement of forthcoming campaigns
to promote eco-driving, its expansion of the Travelling to School
Initiative, and its increase of funding of Cycling England.[120]But it must broaden and accelerate implementation of such
measures, and set itself an ambitious target of CO2 savings to
be achieved as a result. In conducting promotional campaigns,
the Department should also learn from Transport for London's experience
in using advertising to promote individual choice of low carbon
modes of transport. Eco-driving should be incorporated into the
driving test, and eco-driving simulators
(such as used widely
in the Netherlands) should
be used in schools to
ingrain such habits from an early age.

80. Several of the memos we received argued very
strongly for a reduction of speed limits, given that fuel efficiency
decreases markedly at higher speeds. Slower Speeds Initiative,
for instance, argued that reducing the speed limit on motorways
to 60mph, and properly enforcing it, would cut emissions from
cars by 0.82 MtC a year, reducing their emissions overall by 18%;
and that simply enforcing the existing 70mph limit would reduce
CO2 emissions from cars on motorways by around 0.45MtC a year.[121]
SDC, meanwhile, reported that: "France enforced strict speed
limits on main motorways in 2004 and succeeded in reducing carbon
emissions by 19% and accidents by 30%."[122]

81. We asked the Secretary of State why, if this
were the case, the Department were not taking such action. We
received the interesting information from one of his officials
that a proposal to reduce to 60mph or rigorously enforce the existing
motorway speed limit (quantified by Department officials in our
evidence session as delivering annual savings of 0.8MtC or 0.56MtC
respectively), had been discussed within Government for inclusion
within CCP 2006but
had been withdrawn following concerns as to the costs in manpower
and finances of policing it.[123]
We asked the Secretary of State whether this policy could not
be delivered more cheaply by fixing speed cameras on motorway
bridges. His reply suggested to us that, ultimately, the overriding
reason why this policy was not included in CCP 2006 was a fear
of popular antagonism.[124]

82. We understand
the Government's reluctance to lower the motorway speed limit,
or rigorously enforce the current 70mph limit, given the likely
public controversy such a policy would provoke. However, compared
to the potential danger which this could help to avert, proper
enforcement of the legal speed limit would be a trivial incursion
on personal liberty. The Government cannot forever duck the hard
decisions in its duties to face up to "the greatest long-term
challenge facing the human race", in the words of the Prime
Minister. In matters of such grave importance, the Government
does a disservice to future generations by running scared of critical
tabloid headlines. Beyond
its direct impact, a new policy on speed limits would help to
raise awareness of the reality of climate change, and of the need
for everyone to take action on it. Finally, in considering a design
for a national road charging scheme, the Government should choose
one that could cost-effectively aid enforcement of the motorway
speed limit.

84. Cycling in the UK is certainly on the increase:
in London, trips by bike have increased by 50% in five years to
450,000 per day, while use of the National Cycle Network (covering
10,000 miles of urban and rural pathways) rose last year by 15%
to 232 million journeys.[129]
The Government has recently announced a doubling of Cycling England's
budget to £30 million over the next three years,[130]
which will assist this, for instance, by providing:

More money for the cycling Links to Schools projectwhich
ties in schools to the wider 10,000 miles of the National Cycling
Network reducing need for school children to cycle on busy roads.
70% of the links to schools built by the end of 2005 were off-road;
Funding to support the new more rigorous cycling proficiency test
fit for the 21st century not the 1970s. Potentially training
a further 100,000 children to a new, tougher standard including
on-road training.[131]

85. But this is still building from a very low base:
Britain has one of the lowest rates of cycling in the EU, with
only 2% of all journeys made by bike. The Netherlands comes first,
with a rate of 27%. For this reason we studied Dutch cycling policy
and planning in some detail. We were impressed with Houten, the
new town we visited that was designed specifically to make cycling
the primary mode of transport, but the extremely extensive top-down
planning requirements involved do not necessarily make it an example
that couldor
perhaps even shouldbe
copied widely in the UK. More widely and easily applicable was
the general public policy commitment to cycling in Holland, as
evidenced by the widespread provision of cycling lanes and new
and secure bike parking facilities. Accordingly, we
warmly welcome the announcement of increased funding for Cycling
England. But the Department should accelerate progress by implementing
lessons from the Dutch commitment to continuous improvement of
cycling infrastructure.

86. A number of memos we received criticised the
way in which, even though the Department has made many high profile
statements acknowledging that more road capacity leads to more
traffic and CO2, and agreeing that "we cannot build our way
out of congestion",[132]
it is still committed to an ongoing series of major road building
projects. The continued importance attached by the Government
to road building is highlighted by the fact that the Prime Minister
drew attention to the "Thirty five major road schemes [that]
have been completed since 2001" as one of the Department's
key successes in recent years, in the letter of appointment he
sent to the new Secretary of State.[133]

87. Several submissions criticised Government policy,
not simply for being incoherent and leading to increased emissions,
but for being governed by a guidance and appraisal regime which
was at best faulty and at worst biased. Salisbury Transport 2000,
for instance, argued that a local road proposal had been approved
on the basis that, while it would result in increased carbon
emissions, these would only represent a fraction of national emissions,
and therefore would not make a major contribution to national
targets. As the submission argued, if all road projects were assessed
individually in this way, then surely all would be approved on
CO2 groundsleading
to a much larger aggregate impact. Sustrans, meanwhile, drew attention
to reports that, of all bids for capital funding under the Regional
Transport Strategies, 72% were on roads, while in fast-growing
areas such as the South East and the East Midlands, the figure
was 95%.[134]

88. We were
unimpressed by the Secretary of State's defence of the Government's
record on road building. His first argument
was that all of the Highway Agency's road improvement projects
this decade would only lead to an increase of 0.1MtC, a tenth
of the net figure projected to be saved by the RTFO. His second
was that, through the Regional Transport Strategy system, different
regions had been given the freedom to decide most of their own
infrastructure priorities, so that they could make bids for capital
funding for public transport projects if they wanted to.

89. Following our session with the Secretary of State,
we received supplementary evidence from the Department which set
out in some detail the Department's systems for estimating the
carbon impacts of proposed new road projects, and for appraising
such proposals overall.[135]
However, we also received a copy of a report, prepared for Transport
2000 and other parties by consultants Steer Davies Gleave, which
cast doubt on their accuracy and fitness for purpose. In view
of this conflicting evidence, we recommend that the Department's
estimates of CO2 emissions
arising from road proposals should be subject to independent audit.
Furthermore, given that, by its own admission, more road space
leads to more traffic and emissions, the Department should deliberately
apply more stringent criteria to appraisals of proposals for the
construction of new roads relative to lower carbon alternatives,
such as the combination of public transport improvements and demand
management measures.

90. Allowing
regions the freedom to nominate projects for funding seems mainly
to have resulted in a very high proportion of bids for road projects,
although there have also been some major public transport proposals
such as the Manchester Metrolink extensions. This
is hardly surprising, considering the evidence we heard from Transport
2000:

Regions have been asked to give advice on the priorities
within the regions and they had to give advice on the basis of
which trunk road, local road or local public transport schemes
were worth having and rail schemes were completely excluded on
the grounds that the office of the rail regulator had to go through
a detailed exercise to allocate precisely the different costs
of the railway to each individual line and region before you could
even think about doing that, which we thought was specious really.
There are some good rail projects out there which could stand
comparison with road.[136]

The Government should ensure that
infrastructure proposals from both national agencies and local
authorities are governed by a more integrated planning and appraisal
process, and that rail proposals are assessed alongside competing
road proposals. In putting forward and assessing the merits of
different proposals, such a process should take into account the
transport needs of each region as a whole, while assessing the
combined national impact of such proposals on the UK's overall
carbon reduction targets.